One of the most jarring things about federal criminal practice, especially for lawyers who are well trained in civil litigation - is how many procedural rights and doctrines don't apply.

You want to move for summary judgment? No such motion exists (as a general matter, but see this post).

You want to take a deposition? You're likely out of luck. (Yes, that's right, you get more information about the other side's case in a civil case - which is only about money - than you do in a criminal case where someone might go to prison).

Yet, every now and again, a decision comes down that reminds you that in some cases - perhaps rare cases - the old familiar doctrines from law school can provide a benefit in a federal criminal case.

There, the Eleventh Circuit ordered the district court to dismiss an indictment because of the doctrine of collateral estoppel.

That's right - collateral estoppel. In a criminal case.

Collateral estoppel, for the one non-lawyer reader of this blog (hi Mom!), is the rule that once an issue is fully and finally resolved between any two parties, it is settled, and can't be argued again.

How does this arise in a criminal case? Here's what happened.

Mr. Valdiviez-Garcia was charged with illegal reentry. The elements of illegal reentry are that the person charged:

(1) was an alien at the time of the offense; (2) who had previously been removed or deported; (3) and had reentered the United States after removal; (4) without having received the express consent of the Attorney General.

The thing is, Mr. Valdiviez-Garza had already been tried for illegal reentry years before. In that case, he was acquitted.

Mr. Valdiviez-Garza's dad, it seems, was a United States citizen. And, under certain circumstances, if one of a person's parents is a citizen, the person is a citizen.

In the first trial, the only issue was whether Mr. Valdiviez-Garza was a citizen. His lawyer focused on only one issue in the trial - the lawyer cross-examined only one witness, and that cross dealt only with Mr. Valdiviez-Garza's citizenship.

The jury acquitted Mr. Valdiviez-Garza in that case. Because there was only one issue in the first trial, the Eleventh Circuit determined that Mr. Valdiviez-Garza was acquitted on the basis of reasonable doubt about his citizenship.

Therefore, the Eleventh Circuit held, it is finally settled that there is a reasonable doubt as to whether Mr. Valdiviez-Garza is a United States citizen. Under collateral estoppel, the United States government cannot take a position contrary to there being reasonable doubt about whether he is a citizen.

So, when, years later, Mr. Valdiviez-Garza was indicted, again, for illegal reentry, the Eleventh Circuit ordered the district court to dismiss the case, because there is reasonable doubt as to an element of the offense.

Interestingly, the Eleventh Circuit ordered the district court to dismiss the appeal on an interlocutory appeal - without a trial. As the court of appeals explained,

Because the collateral estoppel doctrine implicates the constitutional protection against double jeopardy, we have jurisdiction to review the interlocutory decision under the collateral order doctrine.

Let's hope Mr. Valdiviez-Garcia was not held in custody too long on this charge before the Eleventh Circuit ordered the indictment dismissed.

What's the difference between a white-collar investigation and a blue-collar investigation?

In a blue-collar case, the government knows what the person has done, they just don't know who done it.

In a white-collar case, the government knows who done it, they just don't know what they've done.

[insert the sound of a rim shot]

This joke shows two things. First, the bar for lawyer humor is incredibly low. Second, in a white-collar case, once the government has indentified you as a target, they are likely to keep investigating until they find something to charge you with.

United States v. Fenzl makes the same point (the second one, about the tenacity of the Department of Justice - not the one about how bad legal jokes are).

Steven Fenzl's Case

The government targeted Steven Fenzl, and his colleague Douglass Ritter. The two men ran Urban Services of America, Inc. The company bid on a contract to refurbish the garbage cans of the City of Chicago, Illinois. The company's bid was the lowest bid.

Unfortunately, the contract that the company bid on was never awarded. The folks at Urban thought that perhaps it was because there were too few bids submitted in response to the proposal. Though they weren't sure.

A bit after the company failed to win the bid, the Chicago Tribune announced that Urban was under investigation for improprieties in checks that had been issued to other contractors. Though the investigation never yielded a finding of wrongful conduct, no one told the folks at Urban that the investigation was over until months had passed.

Eventually, the City of Chicago again sought bids on a contract to refurbish their garbage cans. Urban had yet to learn that it was no longer under investigation. It was also worried that not enough other bids would come in.

Urban Services of America Organizes Other Bids

The company then started organizing other companies to also provide bids. The arrangements were, in essence, that the other companies would subcontract the work to Urban if it won, then tack on a profit margin for itself.

Not surprisingly, this did not result in these companies underbidding Urban. Since the other companies didn't really do the kind of work they were bidding on anyway - and would have had to subcontract to Urban - this was not a surprising result.

In the end, Urban bid on the contract, as did three companies that Urban encouraged to bid. Three other companies, that had nothing to do with Urban, also submitted proposals.

Urban was the lowest bid of all seven and won the contract.

The Antitrust Division Gets Interested

The United States Department of Justice's Antitrust Division has a criminal section. The prosecutors in that office launched an investigation of Urban.

Bid rigging, generally, is illegal. As the Seventh Circuit said, "bid rigging [is] a form of price fixing in which bidders agree, usually by rotating bids, to eliminate competition among the bidders."

Yet, here, this bid rigging wasn't done to eliminate competition, rather, it was to encourage the city to take the bids seriously, again, the Seventh Circuit:

at some point [the Department of Justice] realized it didn't have an antitrust case. Urban had been the low bidder and its aim in "colluding" with other potential bidders had not been to prevent them from underbidding it but merely to buy insurance against its bid's being rejected because of false accusations against Ritter and Urban; if Urban lost the bid, at least it would be able to obtain some refurbishing work as a subcontractor of the winning bidder. The bidders invited by Urban were almost certain to submit higher bids because Urban would be doing the actual work and charging for it and the bidders would be repricing Urban's work in their bids.

This is, sort of, pro-competitive bid rigging.

The Department of Justice is Not Deterred

The Department of Justice had their man (or company), so the lack of a crime wasn't going to be an obstacle to prosecution.

So the prosecutors decided to charge fraud rather than an antitrust violation. [T]he theory behind the charge of fraud for misleading the City by inflating the number of bids was never made clear at trial. No evidence was presented that the more bidders there were, the more likely Urban's bid was to be accepted and that this would result in a higher price to the City for getting its garbage carts spruced up. Had there been four bidders rather than seven, Urban would still have been the low bidder, and there is no indication that the City would have cancelled the auction on the ground that there were too few bidders.

The Seventh Circuit's later skepticism notwithstanding, the government charged the Urban principals with fraud. Mr. Ritter pled guilty. Mr. Fenzl went to trial and was convicted. He was sentenced to 16 months in prison, a fine of $40,000, and restitution of $35,302.18.

The Seventh Circuit

Judge Posner, who knows a thing or two about antitrust law, wrote for the Seventh Circuit. He was not a fan of this prosecution (Judge Posner is not getting invited to any Department of Justice parties after this opinion, or this one).

As the learned jurist wrote,

It's difficult to see what's wrongful about such a "scheme." Suppose in despair of ever doing work for the City again Urban had sold its assets to another company and told it, "You go bid on the refurbishing contract." Would anyone think such conduct improper? How different is that from what Urban planned to do in case it was denied the contract even if it was the low bidder? Misconduct in bidding involves trying to reduce rather than increase the competition among bidders.

In addition to criticizing the theory undergirding the prosecution, Judge Posner noted that the government proved it's case using the wrong witness.

A government investigator testified - not as an expert witness - that the City would have disqualified Urban's bid if it knew that it had put the other bidders up to their bids. The basis for this knowledge was opaque to Judge Posner.

Without the testimony of City employees,

it is a matter of conjecture whether the relevant employees in the Department would have awarded the contract--at a loss to the City--to a higher bidder, in order to punish Urban (for what exactly?). But instead of asking them what they would have done had they known what Urban was up to, the prosecutors asked an investigator what he thought they would have done. What the government dignifies by the term "personal knowledge"--for a lay witness is permitted to base his testimony on his personal knowledge (and on nothing else)--is the investigator's conjectures based on seven years of "training and experience," an impermissible basis for lay opinion testimony.

Mr. Fenzl was charged under two separate fraud theories in separate fraud charges. On one he was acquitted. On the other, the court of appeals remanded for a new trial.

One wonders what Mr. Ritter - who pled guilty early - thinks of this opinion.

Deanna Costello's love knew no boundaries. Literally. For years she had a romantic relationship with a man who was not in the United States lawfully. It led to a strong judicial slapdown of the Department of Justice by one of our nation's leading jurists, in United States v. Costello.

Ms. Costello's Boyfriend

Ms. Costello lived in Cahokia, Illinois, perhaps five miles from St. Louis. She lived with a man from Mexico for a year ending in July 2003. That time ended when he was arrested on a federal drug charge. He plead guilty and was sent back to Mexico after his prison sentence.

In March of 2006, Ms. Costello picked her boyfriend up at the bus station in St. Louis. She drove him to her house, where they lived until October 2006. Sadly, he was then arrested on new drug charges, and the couple were again separated. As the court of appeals noted, he "was given a stiff prison sentence."

Ms. Costello was charged with harboring an alien. She went to a stipulated facts trial - basically a trial where she and the government agree what happened, they simply disagree about whether what happened was a crime.

She was convicted. The district court sentenced her to two years probation and a $200 fine.

The Appeal

She appealed. Judge Posner, writing for the Seventh Circuit, reversed, in an opinion as critical of the government as any I've read in a very long time.

Judge Posner concluded, basically, that harboring an alien does not include having a person in the country unlawfully as a live-in boyfriend.

Judge Posner started by noting that "[t]here is no evidence that the defendant concealed
her boyfriend or shielded him from detection" and that, indeed, since he was arrested at her house several times, it's more likely that law enforcement would find him if he was there than, say, at a relative's house.

Or, alternatively,

The defendant in the present case was not trying to encourage or protect or secrete illegal aliens. There is no suggestion that she prefers illegal aliens as boyfriends to legal aliens or citizens. She had a boyfriend who happened to be (as she knew) an illegal alien, and he lived with her for a time.

A Car Ride Is Not Harboring

The district court made much of Ms. Costello having driven the man from the bus station to her house. Judge Posner wasn't impressed with this fact, noting that

the distance was so short--about six miles--that in a pinch he could have
walked. And had he wanted to take public transportation he could have used the St. Louis metro transit system; the price of his ticket would have been $2.75. (That is the price today; it probably was lower in 2006.) There is nothing to suggest that the two of them had
prearranged the pickup, or that, had she not picked him up, he would have returned to Mexico. (We don't know how long he had been in the United States.)

A car ride is not harboring an alien.

Judge Posner spent considerable time considering the meaning of "harboring" in the statute criminalizing harboring an alien. Judge Posner considered the way "harboring" is used, and the breadth of the anti-harboring statute if "harboring" covers Ms. Costello's conduct.

The Government's View of Harboring Is Absurd

Judge Posner was concerned that the government's view of what counts as harboring sweeps lots and lots of conduct into the criminal law. In perhaps the most awkward - yet at the same time still awesome - sentence he's ever written, Judge Posner asks:

is it likely that Congress intended that parents whose child invites an immigrant classmate who, as they know, is illegally in the country to a sleepover might be branded as criminals even if he didn't accept the invitation, since the statute criminalizes attempts?

The court of appeals also points out the absurd consequences of the government's statutory interpretation,

an illegal alien becomes a criminal by having a wife, also an illegal alien, living with him in the United States; if they have children, born abroad and hence illegal aliens also, living with them, then each parent has several counts of criminal harboring, on the government's interpretation of the statute.

Judge Posner Doesn't Trust The Government

The government tells us not to worry: we judges can rely on prosecutors to avoid bringing cases at the outer margin of the government's sweeping definition of "harboring." But this case is at the outer margin. No doubt it was brought because the Justice Department suspects that the defendant was involved in her boyfriend's drug dealings, but cannot prove it, so the Department reaches into its deep arsenal (the 4000-plus federal crimes) and finds a crime that she doubtless never heard of that it can pin on her. She was sentenced only to probation and to pay a fine but now has a felony record that will dog her for the rest of her life if she loses this appeal.

Down with the Dictionary

In perhaps my favorite section of the opinion (though there are many) Judge Posner criticizes the government's use of the dictionary -

"Dictionary definitions are acontextual, whereas the meaning of sentences depends critically on context, including all sorts of background understandings A sign in a
park that says "Keep off the grass" is not properly interpreted to forbid the grounds crew to cut the grass.

To try to learn how "harboring" is normally used, Judge Posner turned to Google:

a search based on the supposition that the number of hits per term is a rough index of the frequency of its use--reveals the following:

It is apparent from these results that "harboring," as the word is actually used, has a connotation--which "sheltering," and a fortiori "giving a person a place to stay"--does not, of deliberately safeguarding members of a specified group from the authorities, whether
through concealment, movement to a safe location, or physical protection.

Because Ms. Costello was not keeping her boyfriend from the authorities - rather she was just keeping him to herself - she was not harboring. She was merely entertaining.

As the internet has made it easier for people to share information - from snarky comments about published criminal cases in the federal circuits, to snarky comments about politics or the Academy Awards - it has made trading child pornography much easier.

Twenty years ago, to trade child pornography, you had to use the mail or meet someone with the same interest. Now, just about any person with an internet connection can find this contraband in less than an hour.

The easy flow and production of child pornography is a serious social problem. My concern is that the only solution we seem to be thinking about is to criminalize the market for it and make the punishments for participating in this market draconian.

Law enforcement learned of a massive online collective of child pornography users. The ring used a sophisticated web of encryption, changing bulletin boards, and membership tests to weed out law enforcement and communicate with each other.

It had leaders - using names such as "Yardbird" "Helen" "Soft" and "Tex" who enforced security and internal discipline. They also decided who was able to join.

After an investigation into the group, fourteen people were arrested. None of the people arrested was a leader in the child pornography ring - though "Helen" was prosecuted in Britain.

The men prosecuted in the United States received sentences ranging from twenty years to fifty years. The leader of the ring, "Helen," was sentenced in Britain to 12 and a half years.

The court of appeals opinion in McGarity is a massive 130 pages. Much of the case in the district court was affirmed, though there were some defense victories of note.

Obstruction of Justice

All the men charged were also charged with obstruction of justice under 18 U.S.C. 1512(c). The superseding indictment, following the language of the statute, accused the men of trying to obstruct an official proceeding. It did not say what that proceeding was.

The Eleventh Circuit held that this was insufficient. Following an opinion from the First Circuit, the court of appeals held that if the government is going to charge obstruction of an official proceeding, it has to say what official proceeding was obstructed.

This is a neat exception to the general rule that a prosecutor has to merely parrot the statute in order to adequately allege an offense. The Eleventh Circuit said that an indictment that doesn't say what official proceeding was obstructed doesn't provide enough notice of how the law was broken. This is fair enough - it's just also true of, say, 75% of the indictments that come out of a federal grand jury.

It's a step in the right direction at least.

Those convictions were vacated and that count of the superseding indictment was vacated.

CEE Requires Three

Finally, all of the men accused were convicted of a violation of statute that criminalizes participating in a Child Exploitation Enterprise under 18 U.S.C. § 2252A(g). A CEE charge requires that the jury finds that a person participated in a series of at least three other child pornography offenses.

Yet one of the men accused was convicted of the CEE charge and was only convicted of two underlying child pornography charges. His CEE conviction was vacated.

John Doe [FN1] is a man who knows how to keep quiet. He came to the government's attention in the worst of ways. In March of 2010, the government found that someone was uploading child pornography to You Tube. [FN2]

Law enforcement tracked the IP addresses of the person who did the uploading. The IP addresses led them to a series of hotels. The only person common to all the hotels where things had been uploaded from was John Doe.

The government tracked John Doe to a hotel room in California. It got a search warrant to go into his room.

Inside the room, law enforcement found a number of computers and hard drives, capable of storing more than 5 terabytes of data.

The government sent the hard drives to the FBI. The FBI, however, was not able to search it all because much of it was encrypted with TrueCrypt technology. [FN3]

The government issued a grand jury subpoena to John Doe to come and open the encrypted files.

John Doe told the government that he would assert his Fifth Amendment privilege against self-incrimination and refuse to testify under the "act of production" privilege.

Generally, the production of documents or evidence that already exists can't be blocked for Fifth Amendment reasons. (Yes, the government can generally get your diary). However, the act of production privilege allows a person to assert a Fifth Amendment privilege if the act of producing evidence would, itself, incriminate that person.

The United States Attorney's Office, aware of this, sought statutory immunity under 18 U.S.C. 6002. As the Eleventh Circuit summarized the government's immunity position:

The Government stated in its letter served on Doe on April 7, 2011, and before the district court on April 19, 2011, that it would not use Doe's act of production against him in a future prosecution; but it would use the contents of the unencrypted drives against him.

At a hearing on the immunity order, the district court went along with the government's request. It decided that Mr. Doe would be immunized from a prosecution based on his act of revealing the documents, but he would not be immunized if the government could link him to any contraband, say child pornography, found on the hard drives through another means, such as the fact that it was found in his hotel room when they executed a search warrant.

John Doe was unsatisfied with this protection.

He refused to unencrypt the hard drives and was held in contempt and taken into custody. He then appealed that contempt order. [FN4]

The Eleventh Circuit reversed the contempt finding, holding that Mr. Doe was allowed to assert the Fifth Amendment since the statutory immunity he was granted was not as broad as his Fifth Amendment protection.

Basically, the Eleventh Circuit held that the Fifth Amendment protects a person from being compelled to unencrypt a hard drive under the act of production doctrine.

The court of appeals held that the act of production is not testimonial, and thus not subject to Fifth Amendment protection, only if two conditions are met:

First, the Fifth Amendment privilege is not triggered where the Government merely compels some physical act, i.e. where the individual is not called upon to make use of the contents of his or her mind. The most famous example is the key to the lock of a strongbox containing documents, see Hubbell, 530 U.S. at 43, 120 S. Ct. at 2047 (citing Doe v. United States, 487 U.S. 201, 210 n.9, 108 S. Ct. 2341, 2347 n.9, 101 L. Ed. 2d 184 (1988)), but the Court has also used this rationale in a variety of other contexts. Second, under the "foregone conclusion" doctrine, an act of production is not testimonial--even if the act conveys a fact regarding the existence or location, possession, or authenticity of the subpoenaed materials--if the Government can show with "reasonable particularity" that, at the time it sought to compel the act of production, it already knew of the materials, thereby making any testimonial aspect a "foregone conclusion."

Here, unencrypting does require some sort of mental work - it requires a person to recall and use his password. So the first exception doesn't apply.

The second exception is a little more interesting - and this is the part that serves as an ad for TrueCrypt.

The court of appeals explained that when a document encrypted with TrueCrypt, a scan of the hard drive doesn't tell you whether there's something there. Blank hard drive space shows up the same as data.

So, for example, child pornography looks the same as blank hard drive space through TrueCrypt.

Because of that, there is no way for the government to know if there is any contraband in the hard drive which is encrypted. Which means that there is no "foregone conclusion" that there's evidence a crime in those hard drives.

Because neither exception applied, the Fifth Amendment protected Mr. Doe from having to unencrypt his hard drives.

[FN1] - Not his real name.

[FN2] - Seriously? You Tube?

[FN3] - This whole opinion reads like an ad for TrueCrypt, in a sense.

[FN4] - In fact, Mr. Doe was held in custody until he was ordered released after oral argument by the Eleventh Circuit.

Nancy Bell had serious health problems. Because of those health problems, she was prescribed pain medicine - OxyContin.

When a person is prescribed oxycodone, which is the generic version of OxyContin, she is required to be tested through pill counts and urine screens to make sure she's actually using it. Ms. Bell was tested, her treatment center said that she had an "outstanding record" of compliance.

The Market For Oxycodone

The reason people taking oxycodone are tested is because there is a tremendous illicit market for the drug.

Ms. Bell was no stranger to that market, unfortunately. She, and her daughter, Iris Gibson, were discovered by law enforcement to be selling oxycodone to others. The "others" decided they liked the government enough to help them prosecute Ms. Bell and Ms. Gibson.

Ms. Bell and Ms. Gibson were charged with conspiracy to distribute oxycodone. They pled guilty without a plea agreement. They went to a sentencing hearing.

The Quantity of Oxycodone

The biggest issue in the sentencing of Ms. Bell and Ms. Gibson was the quantity of oxycodone that was sold illegally.

The sentencing guidelines - specifically section 2D1.1 - suggest longer sentences for people who are involved in a greater quantity of drugs being distributed. Similarly, in a fraud case, the guidelines - specifically section 2B1.1 - suggest a longer sentence for people who are involved in a greater amount of money being taken.

Here, the government introduced the records of the quantity of pills that Ms. Bell was prescribed. They wanted to use that as the basis for the drug quantity.

The government also introduced lengthy testimony from the others who were involved in the drug distribution scheme with Ms. Bell.

Ms. Bell introduced her records from the pain management center to establish that she actually took a lot of these pills. As a result, she argued that the quantity that should be attributed to her should be reduced by the reasonable amount of medicine that she took, under her legitimate prescription for the medicine.

The district court, after listening to what appears to have been a lot of testimony, punted. The sentencing court decided that about 104.5 grams of oxycodone. The court didn't explain how much Ms. Bell consumed herself, or how much was sold to the others, or anything else. The court just asserted that 104.5 was the right number.

The district court then sentenced Ms. Bell and Ms. Gibson based on guidelines ranges based on that number.

The Fourth Circuit Appeal

Ms. Bell and Ms. Gibson appealed. They argued that the judge has to do more to explain how he arrived at the drug quantity.

In United States v. Bell, the Fourth Circuit agreed. Writing for the panel, Judge Andre Davis wrote that, "the district court's explanation for how it calculated that quantity is insufficient to allow for meaningful appellate review."

The court of appeals remanded the case for resentencing for the district court to explain how it arrived at the amount that it used to impose sentencing.

Footnote 8

All of this is relatively uncontroversial, as for as appellate decisions go. Except for the very odd disagreement between the panel about footnote 8 of the opinion.

In the main text, the opinion lists a number of questions that were unanswered by the district court - things like how much oxycodone each witness testified to, how much Ms. Bell used personally and legally, and the time period over which the illegal pill distributing spanned.

I hasten to make two observations. First, I do not suggest that any one or more of the specific queries listed above is or should be either a necessary or a sufficient basis for a permissible finding of drug quantity in any particular case. Like relevant conduct in any case, the district court approaches its task based on the facts and circumstances presented. Second, I recognize that some of these queries, such as the quantity Bell herself consumed, may be more difficult for the government to prove than others. But that does not relieve the government of proving such facts by a preponderance of the evidence at sentencing.

The rest of the panel - Judges Hamilton and Floyd - refused to join this footnote. The rest of the (lengthy) footnote takes these judges to task for failing to sign on to these relatively benign legal propositions.

Really - it's controversial that proving things at sentencing is a "task based on the facts and circumstances presented"? Or that some facts are harder to prove than others?
After reading the footnote and the concurrence by Judge Hamilton, I really don't see the issue, except, perhaps, that Judge Hamilton seems less likely to accept an invitation to a cocktail party for criminal defense lawyers.

Ms. Gibson's Challenge

Ms. Gibson raised a separate challenge. She argued that the government failed to prove that the drugs were attributable to her. Judge Davis was sympathetic, and provided guidance on remand,

the district court will have the opportunity in any event to revisit the evidence of the extent and timing of Gibson's involvement in the conspiracy. We note, however, that
the district court's rejection of Gibson's argument turned on its finding that Gibson "had full knowledge of the scope of the conspiracy and quantity of drugs involved." J.A. 427. Gibson's "knowledge" of the scope of Bell's drug sales, however, is only part of the analysis; under the Guidelines the full amount of oxycodone sold or transferred by Bell is only attributable to Gibson for drug weight purposes if that full amount was reasonably foreseeable to Gibson and within the scope of the criminal activity that she jointly undertook with Bell. See U.S.S.G. § 1B1.3 cmt. n.2. Moreover, if Gibson did not join the conspiracy until May 2008, oxycodone distributed by Bell or other conspiracy members before that date could not be considered "relevant conduct," even if Gibson knew of
that conduct. Id.

Ms. Gibson, it appears, will have a better time at resentencing as well.

Today, of course, is Valentine's Day. And, so, today's post is a story of marriage, love (presumably), and bankruptcy fraud.

Scott and Debra Spurlin

Scott and Debra Spurlin had a number of assets and bank accounts.

They owned Golden Athletics LLC, which, in turn, owned their three cars. They owned Golden Choice Financial, which owned the house they lived in. They owned International Oil, Gas, and Mineral Management, Inc., which owned an account from which Mr. Spurlin wrote checks to Mrs. Spurlin.

They also had a number of bank accounts.

When it came time to file for bankruptcy, however, the Spurlins said that they had one bank account - with $157 in it; that their assets were only $3,364; and that they owned only one company, Spurlin and Associates. Spurlin and Associates filed for bankruptcy the day after the Spurlins did. The Spurlins did not disclose the other companies that the owned, which, in turn, owned their house and cars.

During the course of the bankruptcy, they also answered a form about Mrs. Spurlin's father. More on that below.

5. If not, was any property left by your parent(s) at the time of death? _________

6. Do you understand that should you inherit anything during the next 6 months it will be necessary for you to advise me (your Trustee) in writing within 10 days? ______

The Spurlins answered that Mrs. Spurlin's father had died, and answered "no" to question 5 - indicating that he did not die with any property.

In fact, Mrs. Spurlin's father did have property when he died. He just didn't leave any property to the Spurlins.

The government argued that they filed out line 5 incorrectly - and thereby made a false statement in bankruptcy. The jury agreed, apparently.[FN1]

Making A False Statement In Bankruptcy

As the Fifth Circuit explained, to prove a violation of 18 U.S.C. 152(3) the government must prove:

(1) there was a bankruptcy proceeding;

(2) defendant made a declaration or statement under penalty of perjury in relation to the proceeding;

(3) the declaration concerned a material fact;

(4) the declaration was false; and

(5) defendant made the declaration knowingly and fraudulently.

Here, there was no question that elements (1), (2), and (3) were met. There was a bankruptcy proceeding and the form indicated clearly that it was filled out under penalty of perjury. The standard for materiality is very weak - as the Fifth Circuit said, quoting the district court,

The court described a material fact as one that "has a natural tendency to influence or is capable of influencing the decision of the decision maker to whom it was addressed." The assets available in bankruptcy will influence how the trustee handles the bankruptcy, because bankruptcy is about distributing the available assets.

What Did The Form Ask?

The Spurlins and the government disagree, however, about whether the statement was false.

The Spurlins argued that that, given the context in which it was asked, question 5 really means "Did the deceased parent leave any property to you?" not just whether they left any property at all.

The Fifth Circuit agreed. Very few people die without any property of any kind - if you adopted the government's reading of the question it wouldn't get any useful information. Moreover, the whole point of the question is to find out about assets of the people in bankruptcy - why would the Trustee care about other assets that people's parents left?

And, so, Mr. Spurlin's conviction on this count was reversed for insufficient evidence - because the statement wasn't clearly false, there was not enough evidence for a jury to convict him.

Mrs. Spurlin's Testimony

Mrs. Spurlin, however, did not fare as well.

Mrs. Spurlin testified at trial. On cross, the government asked her how she interpreted question 5 of the form that she filled out.

Here's the exchange:

Q. And the question did not ask whether or not you owned any property following your parents' death, did it?

A. No.

Q. It simply asked: Was there any property left by your parents at the time of death?

A. Correct.

Q. And the answer given here is no?

A. Correct.

Q. And that wasn't accurate, was it?

A. No. I did not fill this out, ma'am.

The Fifth Circuit found this concession to be fatal. Because she admitted that the answer to question 5 was false, the court of appeals determined that the jury had enough evidence to decide that the answer was false, as to her.[FN2]

This strikes me as odd. If the answer is false, it's false, and if the answer is true it's true. I could see Mrs. Spurlin's answer being relevant to whether she intentionally made a false statement, but that's not what's up for debate.

I think, rather, that this is simply an example of why it's very bad for a person to admit to an element of a crime - it gets very hard to undo that later.

[FN1] - Though, frankly, there's so much going on in the rest of this case I think there's reason to doubt how much the jury actually thought about how to interpret this question.

[FN2] - Mrs. Spurlin's defense was that she didn't fill out the form. The Fifth Circuit rejected that as a defense, since she still said everything was accurate under penalty of perjury. In other words, it isn't an element of making a false statement in bankruptcy that you fill out the form yourself.

It's now almost unremarkable that the Fourth Circuit had a defense-friendly published opinion. Yet, on that fact, I will now remark, since the Fourth Circuit recently decided United States v. Gaines.

Driving in Baltimore

Travis Gaines was sitting in the back of a white Crown Victoria, traveling down the streets of Baltimore City. The Crown Vic drove past a police car, with three cops inside.

The police car followed the Crown Vic. The police turned on their car's lights and pulled over the car.

Mr. Gaines, in the back seat, started shuffling around. The police said they could see him moving in the back of the car.

When the Crown Vic stopped, they pulled Mr. Gaines out of it. One of the officers did a pat down, found a gun, and yelled "gun" to the other officers. Mr. Gaines hit the cop and tried to run away. (for what it's worth, he was convicted of assault in Maryland state court for this)

To Federal District Court We Go

Mr. Gaines was caught, and charged in federal court with being a felon in possession of a firearm.

His attorney filed a motion to suppress the gun. He argued that the car was not pulled over for a good reason and that the search of Mr. Gaines, as a result, violated his rights.

The government countered that the Crown Vic was pulled over for a good reason - that there was reasonable articulable suspicion to pull the car over.

Why was the car pulled over?

The police testified at a motions hearing that the Crown Vic was pulled over because there was a crack in the windshield.

One of the police officers, sitting in the back of the police car, testified that when he saw the Crown Vic, he noticed a small crack in the Crown Vic's windshield from the other side of the intersection.

To put this in context, the federal district judge who decided the motion to suppress described the crack as very small and "in the lower right portion of the Crown Victoria's windshield."

The police said that once the first cop saw the crack, they started following the Crown Vic. Through the entire car - including the seats in the car - the other officers said that they, too, saw the crack.

The police testified that they only pulled the car over when they had all three confirmed that they saw the crack.

The district court said, in a word, hogwash. The judge refused to credit this testimony and found that there was simply no credible way to determine that the police would have been able to see that crack in the windshield. In essence, the district court decided that the cops lied. [FN1]

It appears that the police pulled the Crown Vic over, then looked for a reason why they did. Happily, the federal court rejected that approach to law enforcement.

Intervening Acts

The government, presumably wanting to stand behind police tactics even when they are based on a lie, did not stop there.

The government argued that Mr. Gaines' assault and resisting arrest were an intervening act that were an independent basis to find the gun.

Generally, if the police pull you over when they don't have a reason to, and you then give them a reason, you don't get to complain about the first traffic stop.

So, to make this more concrete, assume that you get pulled over for driving the speed limit. Let's say the police just find that suspicious. While they're pulling you over, the passenger in your car starts shooting off fireworks out the window of the car at people walking by. You can no longer complain (successfully) about being pulled over for driving the speed limit, because your passenger gave them a good reason to pull you over.

Here, the government argued basically the same thing happened. The government argued that because Mr. Gaines assaulted the officer, they could arrest him for that and search him for the gun. If that works, then the lie-based windshield-crack search doesn't matter.

The trouble is, Mr. Gaines hit the cop after they found the gun. So, the gun was found not as a result of Mr. Gaines' assault, but only of the bad search.

A Side Note

It's worth noting that this is the second Fourth Circuit opinion that's come out this year where (a) a defendant won; (b) the case involved a Fourth Amendment issue; (c) based on police tactics by Baltimore City Police; and (d) the case was argued for the government by Maryland's United States Attorney, Rod Rosenstein. Here's my commentary on the other opinion.

One of the most disturbing trends in federal law enforcement, is the way the criminal law is being used to regulate business practices.

If someone commits a substantial fraud - that's an appropriate basis for a prosecution. But we shouldn't put people in prison just because something bad happens in business.[FN1]

The Sixth Circuit's opinion in United States v. Parkes is a good example of why prosecution shouldn't be the best option for a bad business decision (as opposed to, say, regulatory enforcement action, or a civil suit).

Remington Industries

Timothy Parkes and Mark Mourier had a vision. They wanted to start a company that would manufacture and distribute floor mats for automobiles.

They started the company in Canada, but soon moved it to Benton, Tennessee. It grew to become one of the largest employers in Benton.

Of course, any business needs a relationship with a bank. Mr. Parkes and Mr. Mourier developed a relationship with the President of Benton Bank - Jim Goddard.

At one point, Parkes and Mourier had an idea - a fantastically bad idea. They would change their manufacturing process, and make floor mats using untested chemicals. It required them to redesign and upgrade their manufacturing process - a massively expensive proposition.

The end result of the upgrade was that Remington made floor mats that would melt in the summer heat.

This change cost the company more than $1.5 million from 2000 through 2002. They retooled their company, and shut down the new manufacturing line. They started buying floor mats made in China - converting from being a manufacturer to a distributor. This transition was going well, but they needed money to keep going.

As a result, the company had to go to Mr. Goddard to borrow more money from Benton Bank.

Benton Bank

Benton Bank was a small bank, with less than $10,000,000 in capital. The FDIC wouldn't let Benton Bank lend more than 25% of its capital to any one customer.

Remington did. They borrowed from a private equity firm, and repaid Benton Bank. As a part of the deal, Benton Bank had to agree to issue an irrevocable line of credit to Remington.[FN2]

Remington then defaulted on the private equity firm's loan, and the private equity firm forced Benton Bank to honor its line of credit.

Things were a little hairy at that point. Benton Bank honored its line of credit, but was then in violation of the FDIC's requirements. Then, Mr. Goddard had a very clever idea.

Mr. Goddard

Mr. Goddard was, as it happens, already embezzling sums of money from Benton Bank. He was a man who knew his way around the fraudulent booking of a loan.

Faced with a need to make the FDIC think that his bank's position was not in violation of their regulations, he simply booked ten small loans to non-existent entities, then took the total of those loans and gave the money to Remington.

Problem solved. Sort of.

Mr. Goddard Gets In Trouble

As the court of appeals noted, "[e]ventually Goddard's years of wrongdoing unraveled and he left the Bank."

After he left, and as things were starting to move to federal law enforcement's attention, someone found a fax in Mr. Goddard's office, which was a printed email to the lawyer for Remington. The email that was faxed was from Mr. Parkes, and copied Mr. Mourier, and listed ten new companies that Mr. Parkes sought to have the lawyer create.

The ten company names were the same companies that Mr. Goddard used to create the fake accounts on Benton Bank's books.

Mr. Parkes and Mr. Mourier Get Into Trouble

This was enough for the FBI. Mr. Parkes and Mr. Mourier were indicted for bank fraud.

Though Mr. Goddard was a government cooperator, he was not called by the government as a witness. Instead, the government relied heavily on the fax as evidence that Mr. Parkes and Mr. Mourier knew what Mr. Goddard was doing.

This was enough for the jury. Or, at least it was as to Mr. Parkes. After trial, Mr. Parkes was convicted of ten counts of bank fraud. Mr. Mourier was acquitted.

The Sixth Circuit

This evidence, however, was not enough for the Sixth Circuit. Its not often to see a court of appeals reverse a conviction for sufficiency of the evidence, but they did. In a lovely turn of phrase, the court concluded that,

Even viewing the record in the light most favorable to the government, there was insufficient evidence to connect Parkes to Goddard's fraud, much less to prove beyond a reasonable doubt that Parkes intended that fraud. Surprisingly, the government offered no testimony from Goddard to establish that Parkes cooperated in, or even knew of, the scheme, even though Goddard had already pleaded guilty with an agreement requiring him to testify "completely and truthfully . . . if called upon by the United States to do so." While that failure does not directly impact the sufficiency of the evidence, it does
leave the evidentiary cupboard nearly bare.

Not content to stop there, the court of appeals then went on to criticize the district court for not allowing the defense to introduce evidence of Mr. Goddard's prior embezzlement, and to criticize the prosecutor for an inappropriate argument in closing.

The inappropriate argument was particularly bad. The prosecutor told the jury that an acquittal would let Parkes and Mourier keep $4 million dollars. But the prosecutor already knew that the money had been paid back to the bank. Indeed, the prosecutor had argued - successfully - not to let that evidence get to the jury.

This is a fantastic case - it's a lovely rebuke to the government for assuming that everyone who deals with a bad apple is, herself, bad.

[FN1] - Relatedly, the idea that any time there's a recession someone on Wall Street should go to prison radically misunderstands the proper function of a system of criminal justice. Sure, if you want to form an angry mob and attack the people who caused something bad, sending executives to prison for bad decisions makes sense. But a more enlightened view is that the government ought to first prove that a person did something that she knew was a crime before she is sent to prison, not just that she worked on Wall Street shortly before the economy took a nosedive.

The Supreme Court's opinion in United States v. Skilling marked a sea change in how the government prosecutes public corruption cases. It used to be that all the government had to prove is that a public figure had a conflict of interest and didn't disclose it. After Skilling, that is no longer a crime.

As the Third Circuit recently discussed, federal circuit courts are unwinding prior prosecutions of public officials for failing to disclose conflicts of interest since that is no longer a crime.

Last week, it was the Fourth Circuit's turn in United States v. Hornsby. The Fourth Circuit reversed Mr. Hornsby's conviction for honest services fraud, but did not undo his conviction for obstructing justice to hide his honest services fraud.

In essence, Mr. Hornsby will spend time in prison for covering up a crime that didn't exist.

The Thing Which Is No Longer A Crime

Andre Hornsby was the chief executive officer of the school system in Prince George's County, Maryland.

His girlfriend was a sales representative for LeapFrog - a company that sells educational products to school systems.

Though it's a little convoluted, Mr. Hornsby was able to have Prince George's County purchase Leapfrog products. His girlfriend received a $20,000 commission for the deal. She generously shared it with Mr. Hornsby - and gave him half.

The Cover Up Of The Not-A-Crime

The Baltimore Sun wrote a story about Mr. Hornsby, his girlfriend, and the LeapFrog deal. The next day the Maryland United States Attorney's Office launched an investigation into the LeapFrog deal.

Mr. Hornsby, upon reading the Baltimore Sun article, ordered that all of his emails be deleted. Sadly, it's hard to find good help these days - one of the computer specialists not only didn't destroy Mr. Hornsby's emails, but turned them over to federal law enforcement.

Mr. Hornsby also had a private consulting firm, and a woman named Cynthia Joffrion worked for him in that business. The FBI told her to tell Mr. Hornsby that they had issued a subpoena for her computer, which had files on it relating to the LeapFrog deal. She did. Mr. Hornsby told her to hide the computer.

Of course, one doesn't become the CEO of a large school district without prior experience. Mr. Hornsby had previously been the superintendent of Yonkers Public Schools in Westchester County, New York.

When Mr. Hornsby was in Yonkers, Ms. Joffrion worked for him. At one point, he was under investigation there. When he learned he was under investigation, he told Ms. Joffrion to get any computers with evidence on them to her relatives. Then, on a recorded call, he told her to burn any paper associated with the ethics allegations. [FN1]

Mr. Hornsby In The District Court

Mr. Hornsby was charged with honest services fraud and obstruction of justice. He was tried in the federal courthouse in Greenbelt, Maryland. His jury hung and the district court declared a mistrial.

A grand jury returned a superseding indictment against him, charging him with more honest services fraud, obstruction of justice, and tampering. He was convicted of some counts of honest services fraud, obstruction of justice, and tampering.

He was sentenced to seventy-two months in prison on all the counts of conviction, to be served concurrently.

Skilling Changes The Rules

After the trial, the Supreme Court decided United States v. Skilling - making it no longer a crime for a public official to decline to disclose a conflict of interest.

The Fourth Circuit found that Mr. Hornsby's convictions for honest services fraud could not survive after Skilling. The court of appeals vacated the conviction for those counts.

On the obstruction and tampering counts, Mr. Hornsby argued that they needed to be vacated as well. He made a number of arguments - the most interesting being that the jury's deliberations on the obstruction counts were contaminated by the idea that he had committed a crime based on honest services fraud. [FN2]

Here, Mr. Hornsby fared less well. The court of appeals noted that even if the government had just gone to trial on the obstruction counts, it would have been able to bring all of the other evidence about LeapFrog in at trial under Rule 404(b). (for a discussion of Rule 404(b), see this post).

So, in the end, Mr. Hornsby will go for resentencing. But will still be convicted of obstruction.

[FN1] - Really? She was recording his calls in New York? Years before this case?

[FN2] - Mr. Hornsby did not argue that obstruction is impossible if there's no underlying crime - regardless of whether you violated the law, you don't get to destroy evidence that you think is responsive to a grand jury subpoena.

Like many Americans, Benjamin Carter liked to smoke marijuana. He also lived in a bad neighborhood, and worried about being the victim of crime.

Even though 18 U.S.C. § 922(g)(3) says that it is a crime for any person "who is an unlawful user of or addicted to any controlled substance" to possess a firearm, Mr. Carter did just that.

When the government found out about his guns and his marijuana habit, they charged him violating section 922(g)(3).

He challenged whether section 922(g)(3) can lawfully apply to someone like himself. The district court did not accept his challenge to the statute.

He pled guilty and went to the Fourth Circuit. Today, in United States v. Carter, the Fourth Circuit remanded the case, saying that the government has to do more work to show that it can constitutionally prevent potheads from possessing a gun.

Of course, after the Supreme Court's decision in District of Columbia v. Heller, our right to have a weapon enjoys more protection than it did just a few years ago.

Justice Scalia in Heller did observe that,

nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms.

Nonetheless, the Supreme Court did interpret the Second Amendment as protecting a person's right to possess a gun.

Mr. Carter argued to the Fourth Circuit that,

Acknowledging that he is a user of marijuana, he contends that he was nonetheless entitled, under the Second Amendment, to purchase the guns for the lawful purpose of protecting himself and his nephew in his home against those who might intrude. And because the right of self-defense in the home is the "central component" of the Second Amendment protection, Heller, 554 U.S. at 599, and is "fundamental" and "necessary to our system of ordered liberty.

For that reason, because his right to have a gun is most protected when he's having the gun to protect his house, Mr. Carter argued he should be able to have the gun, despite his marijuana use. Mr. Carter, though, "challenges the link between marijuana usage and gun violence."

The Fourth Circuit was inclined to go halfway with Mr. Carter. Bemoaning that

[i]n developing its record in this case, the government has chosen not to rely on academic research or other empirical data to demonstrate the connection between drug use and gun violence, even though such evidence is abundantly available

the court of appeals noted that

the government still bears the burden of showing that § 922(g)(3)'s limited imposition on Second Amendment rights proportionately advances the goal of preventing gun violence. And we conclude that in this case, the record it made is insufficient. Without pointing to any study, empirical data, or legislative findings, it merely argued to the district court that the fit was a matter of common sense.

This appeal to common sense, the Fourth Circuit determined, was not sufficient.

The court remanded so that the government could develop a record in the district court to justify section 922(g)(3).

At bottom, we conclude that Congress had an important objective for enacting § 922(g)(3) to reduce gun violence and that disarming drug users and addicts might reasonably serve that objective. But the burden of demonstrating the fit rests on the government. Because the government did not present sufficient evidence to substantiate the fit, we vacate the judgment and remand the case to allow it to do so and to allow Carter to respond.

One suspects that things won't be much different on remand, but, at least, the Fourth Circuit is taking the Second Amendment seriously.

One morning, as she arrived at work at the IRS in Chattanooga, an African-American man in a red and white patterned shirt approached her with a gun. He ordered her to start her car. She did. He drove away in it.

The police later arrested Gary Clay, an African-American man, for the carjacking.

Ms. White never identified Mr. Clay for the police. And, before trial, she died in an automobile accident.

About an hour after the carjacking, an unshaven African-American man used some Ms. White's bank cards to withdraw money. The ATM had a camera that captured a picture of the man. An FBI agent thought that the man in the picture was Mr. Clay.

The police looked for Ms. White's car for days. Finally, they found it in an apartment complex. The parking space it was in was assigned. When they went to the unit assigned to the space, they found two women, Ms. Abernathy and Ms. Hancock. They also found Mr. Clay.

Ms. Hancock leased the unit, and let the police search the apartment. The police found the keys to Ms. White's car. Inside the car, they found a CD that had a number of pictures on it - including photos of Mr. Clay wearing a red and white shirt similar to the one worn by the carjacker.

Rule 404(b) lets the government in a criminal case introduce evidence about a person's prior bad acts in order to show something relevant to the case about them - but not to just make the person look bad. As the rule says, the evidence must be relevant to something like "motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident."

The rationale behind this makes sense. Imagine a person who isn't allowed to have a gun is found with a gun in his coat. If he knew it was a gun, that would be illegal. If his defense was that he didn't know what the heavy lump of metal in his coat was and it was just an innocent mistake ("My crazy friends do the darnest things!"), you could see why it would be fair to introduce evidence that he'd had a gun in that coat before, which would make the jury think this is less likely to be a mistake.

Similarly, if a person was convicted of breaking into houses and leaving a DVD of Exit Through the Gift Shop behind, then, later, is on trial for breaking into a house where a copy of Exit Through the Gift Shop was left, you could see how the prior burglaries would be relevant at a trial for the later one.

On the other hand, the rule is ripe for abuse. I had a case where a gun was found in a coat and we were arguing it wasn't our client's coat. He had a prior conviction that involved the use of a pellet gun in an assault. The government argued that the prior pellet gun assault should be admitted under Rule 404(b). Though I still, to this day, do not understand how that's allowable under the rules, the court let the evidence about the prior pellet gun assault into evidence.

And, the government can't introduce evidence under 404(b) if the prejudice that comes from telling the jury about a person's prior bad behavior outweighs the advantages to telling the jury in its quest for the truth. This is contained in Rule 403.

Sometimes, telling people the bad things a person has done, will just make the person look really bad.

In Mr. Clay's case, the government introduced evidence that Mr. Clay previously drove up to a woman, who was 15 years old at the time, and told her to get in his car. When she didn't, he got out of the car and hit her in the face with a gun.

The woman herself testified, and told the jury that she thought she was going to die that day. It isn't hard to imagine that this was powerful evidence.

The government introduced this evidence, presumably, so the jury would know that Mr. Clay knows what it means to hurt someone near a car.

Mr. Clay was convicted, and sentenced to thirty years in prison.

He appealed the 404(b) ruling.

The Sixth Circuit court of appeals, in United States v. Clay, reversed. The appellate court found that the evidence of Mr. Clay's assault on the 15 year old didn't have enough to with his carjacking charge to be admissible. The court held,

the government argues that the assault is admissible to prove specific intent because it shows that Clay could develop the intent to cause serious bodily harm to innocent strangers who resist his demands. Considering both the case law and the purposes of Rule 404(b), this sweeps too broadly and risks eroding the Rule's very purpose. It perches perilously close to proving specific intent by showing propensity, as it suggests that a person who engages in bad behavior toward another is likely to do so again. The two offenses at issue--assault and carjacking--are too unrelated and too far apart in time to be probative of whether Clay had the specific intent to do harm to White; they merely show the criminal character of Clay.

At the same time, the Sixth Circuit noted that this evidence was much more prejudicial than probative. The testimony about an assault on a 15 year old is virtually guaranteed to move a jury to think of Mr. Clay as a Very Bad Man. And it has almost nothing to do with whether he's the man in the white and red checked shirt who committed the carjacking.

On that basis, the Sixth Circuit reversed the conviction and remanded for a new trial.

This is a good case. It's hard to express how maddening it is to see the gulf between what Rule 404(b) says and the way it's applied. It's a lovely thing to see a court actually applying the plain language of 404(b).

Statewide's patients were first evaluated by a doctor to see if they needed therapeutic exercise. If they did, and the doctor ordered it, Statewide would send a person to the patient's home.

The people who were sent were kinesiotherapists. These therapists provided care at the patient's home without a doctor present.

Medicare's Rules for Physician Supervision

The rub is that Medicare's billing regulations require that a doctor supervise a kinesiotherapists' work. And, for Medicare billing, while, "supervise" doesn't mean that the doctor is in the same room, it generally means that the doctor is in the same building and can come in and help if need be.

If that's the definition, then Statewide's kinesiotherapists were not supervised by physicians.

So, it looks like the therapeutic work that Statewide submitted bills for did not comply with the Medicare billing regulations. Which is a pleasant way of saying that Statewide's bills may have been fraudulent.

There was one saving possibility for Statewide's billing practices - there is an exception to the direct supervision rule for people in certain kinds of underserved areas and for home treatments with other kinds of home health benefits under Medicare had been exhausted. If this exception applied, then there was an exception to the physician supervision requirement. If there was an exception to the physician supervision requirement, then there was no Medicare fraud!

Ms. Jones and Mr. Pearson relied on this provision.

At trial, the government presented evidence that the Statewide's interpretation was untenable, in the form of an expert about Medicare billing.

It looked like maybe Statewide has an argument there. The trouble, however, was that Statewide billed more for the task than for the amount of time it spent.

The government's Medicare billing expert explained to the jury that Statewide's billing practices caused treatments that took an hour to be billed as taking ten hours.

That's never going to look good to a jury.

Who Knew What When

The question then, turned on whether Ms. Jones and Mr. Pearson knew that they were submitting fraudulent bills. The process for sending bills in was a little complicated. First a secretary in an office - there were seven - would collect the therapists' treatment records and enter that data into a billing sheet.

The therapists did not keep records of how much time they spent, just what treatments they performed.

These billing sheets were then sent to Ms. Jones in Dallas, who turned them into bills to Medicare, based on the part of the body that was treated, instead of the amount of time that the treatment took.

Mr. Pearson was the CEO and generally managed the day-to-day affairs of the company, including its billing systems.

The jury convicted Ms. Jones because she was the one who submitted these bills to Medicare. There was evidence that Mr. Pearson was in the weeds with the business - he was convicted for also having the requisite knowledge.

Mr. Pearson was convicted of making false statements relating to health care. Both Mr. Pearson and Ms. Jones were convicted of theft of government property and health care fraud.

The Jury Verdict Form

To make a false statement in violation of 18 U.S.C. § 1035, a person has to make the false statement knowingly and willfully." It isn't enough if the person makes a mistake and submits false information - the statement has to be a lie.

So, we don't send people who make math errors to prison. It's only if the math errors are made on purpose - so they aren't really math errors, as such - that the person makes the willfully false statement.

In Mr. Pearson's case, the jury verdict form did not use the legal standard for what the person charged with the crime had to know from section 1035. Rather, the jury was told that they could convict if they found that Mr. Pearson

"knew, or should have known, that the services billed by [Statewide], were not provided by a physician or under the direct supervision of a physician, as required by Medicare."

This jury instruction is much weaker than what the statute requires. If a person "should have known" that 2+2=4, but puts 5 when adding 2 twice, she meets this standard. And that's not what section 1035 allows.

As a result, Mr. Pearson's conviction was reversed and sent back for a new trial.

Joseph P. Collins was charged with securities fraud, mail fraud, wire fraud, making false statements to the Securities and Exchange Commission, and conspiracy. He went to trial and, we can imagine, spent weeks - possibly months - working with his lawyers to diligently defend himself and his rights. His trial took twenty-two days of testimony - more than four weeks in a federal courtroom.

Finally, it was messed up by two maladjusted jurors and a judge who wanted to handle things alone.

We are all bit players in each other's lives. Everyone understands that. In Mr. Collins' case, however, it's not unlike a world where Rosencrantz and Gildenstern decide that they'd rather kill Hamlet than travel with him.

On the fifth day of deliberations, the jurors were having trouble. They sent a note to the court describing that they were having a hard time reaching a verdict. The court, after consulting with the attorneys for the government and Mr. Collins, sent a note back, saying that they should keep at it.

Later that day, a Court Security Officer reported hearing a kerfuffle from inside the jury room. The CSO entered the jury deliberation room. There, one juror accused another juror of physically threatening him.

The trial judge was alerted. He brought the jury back into the courtroom and told them "to show respect for one another." He then sent them home for the day.

The next morning, shortly before 10 a.m., two notes came out from the jurors. The first was from juror number 4. It read,

I am writing to express my concern regarding the conduct of juror number 9 . . . . Although I appreciate your efforts to control the frequent insults I've endured, the threat of bodily harm brings this abuse to a whole new level. Specifically, in a loud and belligerent man[ne]r juror [9] threatened to "cut off your (my) finger." She made that statement twice. In the same tirade she stated, "I will have my husband take care of you." These threats were made yesterday afternoon July 8, 2009.
Rest assured I will not allow such threats and intimidation [to] alter my vote when it comes to determ[in]ing a verdict in this case. I am concerned, how[ev]er, [that] hearing these threats may affect other jurors. Regardless, I believe this is not the proper way to deliberate and the Court should be made aware of this conduct.

The second note was from the foreperson.

In regards to the earlier note . . . from Juror 4 . . . , it is my personal opinion that the altercation yesterday could be traced to both parties involved. There ha[ve] also been conversations on numerous occassions [sic] regarding respectfulness on the part of Juror 4.

Imagine sitting in a courtroom, nervously waiting to hear if you'll be convicted of several serious fraud offenses, when you learn that two of the people deciding your fate are spending their time blaming each other for not being more respectful. Awesome.

Later that afternoon, the foreperson sent another note saying,

There's been some concern amongst some of the juror's [sic] regarding odd behavior on the part of Juror #4 . . . . During deliberations on 7/2, [Juror 4] changed his vote on a charge, bringing a unanimous decision. However, [Juror 4] then attempted to make his vote contingent upon the room agreeing blindly on a charge to be voted on later. He wanted to barter.
In my opinion, this is at the heart of yesterday's altercation between juror's [sic] 4 and [9].
To compound this issue, juror 4 has made it clear he would prefer to be a hung jury than do further evidence research.

The court decided that it needed to have a private conversation with Juror 4. It told the parties so. The defense lawyer said that he was not agreeing that the court should speak privately with Juror 4.

Juror 4 and the court had a conversation which is remarkable only that it shows the extent to which a federal district court judge is willing to delve into a terribly dull he said/she said conversation to avoid retrying a multi-week fraud trial. The court encouraged Juror 4 to keep an open mind, and reminded him that it was really important to try to reach a verdict.

The next day the jury sent out a note that they had a partial verdict. Mr. Collins was convicted of two counts of securities fraud, two counts of wire fraud, and conspiracy.

Christopher Wright and Andrew Teitelman were friends. As sometimes happens to the best of us, Mr. Wright fell on hard times. He was in the middle of a divorce, and he was out of cash. His mother had just died from cancer. He had a drinking problem that was getting worse.

Mr. Teitelman helped his friend out - he got him into rehab and, as a lawyer, Mr. Teitelman represented Mr. Wright in his divorce proceeding when he could no longer afford his first divorce lawyer. He also represented Mr. Wright in a foreclosure proceeding and, later, in an eviction proceeding. For all this legal work, Mr. Wright paid $350.

Mr. Teitelman also helped Mr. Wright get housing when Mr. Wright had to move. Mr. Teitelman's sole client (aside from Mr. Wright) was Ravi Chawla. Mr. Chawla was a developer, who had an empty apartment building. Mr. Teitelman persuaded Mr. Chawla to let Mr. Wright stay in one of the units of that apartment building, for free. Mr. Chawla also tried to send a multi-million dollar real estate deal to Mr. Wright to try to get some money in Mr. Wright's pocket during this time - Mr. Wright was a realtor - though nothing came of the deal.

If Mr. Wright hadn't also been the Chief of Staff of a member of the City Council of Philadelphia during this time, the nice things Mr. Teitelman and Mr. Chawla did for Mr. Wright would have been much less likely to get the three of them indicted in federal court.

Though, perhaps, the problem was that Mr. Wright did nice things to Mr. Chawla too.

Mr. Chawla really wanted a law passed that would have made zoning easier for new development. Mr. Wright worked with his boss to get the law passed.

Mr. Chawla needed information from various city departments. Mr. Wright, asking from a City Council office, was able to get it more quickly than Mr. Chawla would be able to get it on his own. Mr. Wright was happy to help that way.

The three men were charged with honest services fraud and wire fraud. The Third Circuit decided an appeal of their trial conviction in United States v. Wright.

Honest Services Fraud

A few years ago, honest services fraud under 18 U.S.C. § 1346 could be charged in two ways relevant to this case. The jury was instructed that they could find the three men guilty of an honest services fraud scheme if the government proved either that (a) there was a conflict of interest for Mr. Wright that he didn't disclose, or (b) that Mr. Wright was taking money in exchange for providing a service in his official duties.

That changed in United States v. Skilling - decided after the trial in this case. In Skilling, the Supreme Court, ruling on an appeal from ex-Enron executive Jeffrey Skilling's conviction, held that the conflict of interest theory was not a constitutional reading of honest services fraud.

The jury convicted the three men of honest services fraud. It's pretty straightforward to see that this violates the conflict of interest theory of honest services fraud - Mr. Wright had a conflict of interest based on the largess he accepted from his friends. He didn't disclose it.

When Skilling was decided, the government did not oppose the release of the three men from prison pending the resolution of the appeal.

The Third Circuit After Skilling

The question in this appeal was whether the government had proven that the men committed quid pro quo honest services fraud beyond a reasonable doubt. The Third Circuit found that the government hadn't met that burden.

In essence, the government would have had to show that Mr. Wright helped out Mr. Teitelman and Chawla in his performance of his duties because they had helped him with his personal situation. And, conversely, that Mr. Teitelman and Mr. Chawla helped Mr. Wright because he would then perform official acts.

The government's proof fell short on both sides of the quid pro quo.

First, Mr. Wright worked for a councilman who was, everyone agreed, pro-developer. The councilman directed his staff to help folks out in the developer community. There was trial testimony that his staff did a lot of favors and secured a lot of information for many members of the business community. So it looks like Mr. Wright was not uniquely favoring Mr. Chawla.

Second, Mr. Teitelman, in particular, was friends with Mr. Wright. This, in itself, provided a motivation beyond a corrupt scheme. As the Third Circuit said,

The evidence establishes, and the Government does not dispute, that Wright and Teitelman were close friends. It is equally clear that Wright was in dire personal straits at the time. His mother had just died of cancer, he was embroiled in a marital fight and divorce, he was essentially broke, and he was drinking heavily. Teitelman was among Wright's few friends who intervened and helped him enter rehabilitation. . . . While friendship is no bar to an honest services fraud conviction (as the parties involved are often friends), these facts show a close friendship. Here, the jury could have found that friendship, not fraud, motivated Teitelman to find the apartment in Center City and to act as Wright's lawyer.

Because the government had not proven honest services fraud on the remaining viable count beyond a reasonable doubt, the conviction for honest services fraud was vacated.